EDITION: October - December '07

INHERITANCE AND DONATIONS TAX

Manuel Vijande

On January 1st 2007, the new reformed inheritance and donations tax law came into effect in our autonomous region. With this reform our region joins others that had already passed laws reducing this tax, under the auspices of the responsibilities acquired by the autonomous regions in the tributary field.

The legislator in this case is sensitive to the significant economic loss that payment of the inheritance tax signified up until now to the family unit (ancestors, descendants and spouse) since, in the majority of cases, not only does the inheritance in favor of children or spouse not imply more readily accessible wealth, but it often actually forces the heirs to sell some of the inherited assets to pay the taxes.

Providing a certain economic security to one’s descendants is a natural human desire, which in turn motivates decisions about jobs, savings and accumulation of property throughout our lives. Obliging members of the immediate family to pay a tax in order to continue enjoying the family’s assets is, therefore, more than questionable, from the point of view of family protection.

Without entering into a discussion about said reform, I will simply state its main novelties.

Firstly, we shall define inheritances as acquisitions as a result of death, different to donations, which are lucrative acquisitions between living people.

Tax regulations establish four different groups of kinship with the deceased or donor. The newly established deductions are applied to the first two groups (which include parents, offspring and spouse, extending to include stable couples).

The following are some of the established reductions: - Reduction for acquisition of principal residence. - Reduction for acquisition of certain assets and shares in protected areas or areas of agricultural interest. - Reduction for monetary donations from parents to children or other descendants for the acquisition of a first family home. - Reduction for monetary donations from parents to children or other descendants for the acquisition or setting up of a company or professional business.

To sum up, the tax for these two kinship groups has been reduced to 1% for inheritances and 7% for donations. Therein exists the special legal concept of universal donations and inheritance successions, regulated by the civil law code of the Balearic Islands, which can benefit from the abovementioned fiscal benefits since they are considered as inheritances.

In conclusion, we can affirm that any tax reduction is good news for everyone. In this specific case, it means significantly reducing a tax that is difficult to justify within the framework of a family unit.